Introduction (521.1 to 521.2)
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521.1

Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence.

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521.2

Family or personal relationships with client personnel might create a self-interest, familiarity or intimidation threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances.

Requirements and Application Material

General (521.3 A1 to 521.3 A2)
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521.3 A1

A self-interest, familiarity or intimidation threat might be created by family and personal relationships between an audit team member and a director or officer or, depending on their role, certain employees of the audit client.

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521.3 A2

Factors that are relevant in evaluating the level of such threats include:

  • The individual's responsibilities on the audit team.

  • The role of the family member or other individual within the client, and the closeness of the relationship.

Immediate Family of an Audit Team Member (521.4 A1 to R521.5)
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521.4 A1

A self-interest, familiarity or intimidation threat is created when an immediate family member of an audit team member is an employee in a position to exert significant influence over the client's financial position, financial performance or cash flows.

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521.4 A2

Factors that are relevant in evaluating the level of such threats include:

  • The position held by the immediate family member.

  • The role of the audit team member.

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521.4 A3

An example of an action that might eliminate such a self-interest, familiarity or intimidation threat is removing the individual from the audit team.

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521.4 A4

An example of an action that might be a safeguard to address such a self-interest, familiarity or intimidation threat is structuring the responsibilities of the audit team so that the audit team member does not deal with matters that are within the responsibility of the immediate family member.

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R521.5

An individual shall not participate as an audit team member when any of that individual's immediate family:

  • Is a director or officer of the audit client;

  • Is an employee in a position to exert significant influence over the preparation of the client's accounting records or the financial statements on which the firm will express an opinion; or

  • Was in such position during any period covered by the engagement or the financial statements.

Close Family of an Audit Team Member (521.6 A1 to 521.6 A4)
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521.6 A1

A self-interest, familiarity or intimidation threat is created when a close family member of an audit team member is:

  • A director or officer of the audit client; or

  • An employee in a position to exert significant influence over the preparation of the client's accounting records or the financial statements on which the firm will express an opinion.

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521.6 A2

Factors that are relevant in evaluating the level of such threats include:

  • The nature of the relationship between the audit team member and the close family member.

  • The position held by the close family member.

  • The role of the audit team member.

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521.6 A3

An example of an action that might eliminate such a self-interest, familiarity or intimidation threat is removing the individual from the audit team.

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521.6 A4

An example of an action that might be a safeguard to address such a self-interest, familiarity or intimidation threat is structuring the responsibilities of the audit team so that the audit team member does not deal with matters that are within the responsibility of the close family member.

Other Close Relationships of an Audit Team Member (R521.7 to 521.7 A3)
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R521.7

An audit team member shall consult in accordance with firm policies and procedures if the audit team member has a close relationship with an individual who is not an immediate or close family member, but who is:

  • A director or officer of the audit client; or

  • An employee in a position to exert significant influence over the preparation of the client's accounting records or the financial statements on which the firm will express an opinion.

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521.7 A1

Factors that are relevant in evaluating the level of a self-interest, familiarity or intimidation threat created by such a relationship include:

  • The nature of the relationship between the individual and the audit team member.

  • The position the individual holds with the client.

  • The role of the audit team member.

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521.7 A2

An example of an action that might eliminate such a self-interest, familiarity or intimidation threat is removing the individual from the audit team.

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521.7 A3

An example of an action that might be a safeguard to address such a self-interest, familiarity or intimidation threat is structuring the responsibilities of the audit team so that the audit team member does not deal with matters that are within the responsibility of the individual with whom the audit team member has a close relationship.

Relationships of Partners and Employees of the Firm (R521.8 to 521.8 A2)
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R521.8

Partners and employees of the firm shall consult in accordance with firm policies and procedures if they are aware of a personal or family relationship between:

  • A partner or employee of the firm or network firm who is not an audit team member; and

  • A director or officer of the audit client or an employee of the audit client in a position to exert significant influence over the preparation of the client's accounting records or the financial statements on which the firm will express an opinion.

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521.8 A1

Factors that are relevant in evaluating the level of a self-interest, familiarity or intimidation threat created by such a relationship include:

  • The nature of the relationship between the partner or employee of the firm and the director or officer or employee of the client.

  • The degree of interaction of the partner or employee of the firm with the audit team.

  • The position of the partner or employee within the firm.

  • The position the individual holds with the client.

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521.8 A2

Examples of actions that might be safeguards to address such self-interest, familiarity or intimidation threats include:

  • Structuring the partner's or employee's responsibilities to reduce any potential influence over the audit engagement.

  • Having an appropriate reviewer review the relevant audit work performed.